Surging supply has soybean in pain; trade friction may add to its trouble

Even on the domestic front, this year could be a bumper one for soyabean production as sowing crossed 11 million hectares.

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Aug 14, 2018, 06.39 PM IST

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Even on the domestic front, this year could be a bumper one for soyabean production as sowing crossed 11 million hectares.

By Manoj Kumar Jain

Global soyabean production is on the upswing, pressuring prices. What is coming as an additional headwind is the ongoing trade slugfest between the US and China.

According to USDA latest crop production estimates -- released last week -- global soybean production for crop year 2018-19 will reach 3,671 lakh tonnes against the earlier estimate of 3,594 lakh tonnes.

While the US is seen to account for 1,248 lakh tonnes against the previous estimate of 1,172 lakh tonnes, Brazil’s output is projected at 1,205 lakh tonnes against Argentina’s 570 lakh tonnes.

Even on the domestic front, this year could be a bumper one for soyabean production as sowing crossed 11 million hectares.

US end stock is expected to stay higher on lower export to China because of the ongoing trade issues involving China.

The prices are visibly under pressure. Soybean futures contracts at CBOT plunged more than 5 per cent below 900 cent per bushel.

Looking at fundamentals and the record global output, further weakness in the soybean prices cannot be ruled out. The dollar is getting stronger among its peers, a negative for global commodity prices.

In our view, soyabean prices will face more pressure in coming days.

Technical Chart of Soybean(Source: investing.com)

Technical viewSoybean prices at CBOT are already at multi-year lows, trading around 842 cent. In July, prices slumped to a low of 819 cent. The graph has been in decline from the high of 1,046 cent in May.

Prices have retraced by almost 36 per cent of the total fall and tested 902 cent last week.

The technical chart is showing further weakness in prices, which could retest their recent low of 819 cent and even more.

On NCDEX, the October contract continues to feel the pinch after hitting a high of Rs 3,567 in July. It touched a low of Rs 3,280 on July 16 and retraced almost 57 per cent from its lower levels, showing weakness again.

The chart is pointing to more softness. Soybean prices will reverse the trend only when it closes above Rs 3,450 levels on NCDEX. Otherwise, it will test support level of Rs 3,250-3,180-3,130 levels again.

Trades can take the opportunity and sell soyabean in Rs 3,350-3,370 with strict stop loss of Rs 3,450 on a closing basis for the downside target of Rs 3,250-3,180-3,130.